New Overtime Rule Could Raise Wages for 4.7 Million Millennial Workers

The strength of the U.S. economy depends on providing Millennials with opportunities to join and build up America’s middle class.

This summer, the U.S. Department of Labor proposed a new rule that will give 13.5 million workers, including 4.7 million Millennials, a raise if it becomes a regulation. The new rule, which determines who is covered by the Fair Labor Standards Act, more than doubles the annual salary threshold for guaranteed overtime pay from $23,660 to $50,440. This change would guarantee that workers with salaries below this level earn overtime pay—the equivalent of 1.5 times their hourly wage—whenever they work more than 40 hours per week. The fate of the rule will be decided by the Department of Labor after a comment period ends on September. 4, 2015.

The act was originally designed to ensure that white-collar employees who do not have high salaries or control over their work schedules receive fair pay when they work more than 40 hours per week. Overtime rights are crucial to the strength of the middle class. In 1975, the overtime provision covered 62 percent of salaried workers. But under the current salary threshold of $23,660, the law covered only 8 percent of salaried employees as of 2014. Today, if a worker earns anything above $23,660, which is less than the federal poverty level for a family of four, their employer can classify them as exempt from overtime as a “professional,” ”executive,” or “managerial” employee—even if they spend most of their day stocking shelves. Increasing the salary threshold for overtime to $50,440 makes overtime rights available to the middle class once again.

Workers younger than age 35 will see the greatest effect

The proposed salary threshold increase is a significant gain for millions of Americans of all ages, but it will especially affect salaried workers under age 35 because they are more likely to have salaries that fall below the new threshold. A vast majority of 16- to 24-year-olds and a substantial proportion of 25- to 34-year-olds would qualify for overtime pay based on their salaries. Seventy percent of 16- to 24-year-olds and 41 percent of 25- to 34-year-olds with full-time salaries in exempt roles earned less than the proposed threshold of $50,440 in 2013.

The strength of the U.S. economy depends on providing Millennials with opportunities to join and build up America’s middle class. But without guaranteed overtime rights, too many people have to work long hours without ever getting ahead. With this new rule, Millennials working more than 40 hours per week will be better able to attain financial stability.

Overtime rights will drive economic growth and give workers more power

In addition to providing fairer pay to the many Millennials who are already employed, increasing the overtime salary threshold provides a powerful incentive to businesses to hire more workers. While the national unemployment rate has recovered significantly since the start of the Great Recession in 2007, Millennials—particularly young Millennials of color—attempting to enter the workforce today still face extremely high unemployment rates.

Worker hours have recovered since the recession, even though unemployment has remained above prerecession levels. This implies that, instead of hiring new workers, firms have simply increased the hours of their current workers. Because the new rule will require a larger range of salaried workers to be paid time and a half when they work more than 40 hours per week, employers have an incentive to hire more workers instead of pushing their current employees to work longer hours.

In addition to incentivizing job creation, reforming overtime rules will boost consumer demand. By increasing the paychecks of workers who become eligible for overtime pay, the rule will enable middle-class workers to spend more money, which in turn means sustainable economic growth from the middle out.

The proposed rule is a win for Millennials’ week-to-week income, but it is also a powerful action by the Obama administration to put more power back into the hands of the American middle class—power that many Millennials have never had. Young workers today started looking for jobs at a low point for pay standards and workforce conditions, and they have never had the same overtime protections as their parents. Saddled by staggering amounts of student debt in a still-recovering economy, Millennials have lacked the bargaining power to push back against jobs that pay unfairly or demand chaotic, unreasonable scheduling. Expanding overtime rights would put more power back into the hands of workers to demand fair pay and reasonable hours.

Conclusion

American workers are more productive than ever, but without overtime protections, too many of them work long hours without getting ahead. Expanding overtime protections to cover workers with annual salaries less than $50,440 reinstates the rights of Americans to fair pay for their work, while also driving economic growth. If the new rule is implemented, it will be especially beneficial for Millennials reaching for the middle class.

Sunny Frothingham is a Policy Advocate for Generation Progress.